Op-ed: Tax reform should end favoritism

Now that Obamacare repeal efforts and other debates surrounding health care have been shelved — for now, anyway — members of Congress have turned their attention toward the new issue du jour: tax reform.

While there’s little consensus on exactly what form tax reform should look like, pretty much every politician on Capitol Hill agrees that fairness should be a primary goal.

If Congress wants to make the tax system fairer, lawmakers should focus on unfair tax advantages and loopholes received by certain businesses and industries. To see the most blatant example of one special interest receiving preferential treatment through the tax code, lawmakers need look no further than the ridiculous charity status that allows big credit unions to make millions of dollars without paying a dime in taxes.

Banks — even small neighborhood banks — typically shell out about 29 percent of all the money they earn to Uncle Sam. Credit unions, which provide customers with the same services as banks, don’t pay taxes at all — even though nearly 300 credit unions across the U.S. have more than $1 billion in assets.

The federal government allowed credit unions to operate as charities during the Great Depression as a way to encourage neighbors to loan money and pay interest to one another when cash, and banks, were scarce.

But as credit unions outgrew their original purpose and swelled larger than even major banks, Congress never went back to fix the tax code to make the biggest and richest credit unions pay their fair share in taxes. The issue went from a simple oversight by Congress to an intentional effort to allow credit unions to flout tax laws once credit unions began contributing millions of dollars each year to congressional candidates.

Sens. Orrin Hatch and Mike Lee of Utah appear fed up with this type of tax favoritism and special-interest shenanigans.

Both Hatch and Lee have made it clear they support creating a fairer tax structure that levels the playing field for all individuals and businesses, while getting the government out of the business of picking winners and losers through the tax code.

In fact, when he unveiled his own tax reform proposal in 2015, Sen. Lee declared his desire to “restore fairness to the tax code by leveling the playing field for all businesses” and “move the government away from picking winners and losers.”

Sen. Hatch agrees that government shouldn’t give special treatment to a chosen few. “Picking winners and losers through the tax code is a fool’s errand,” Hatch noted.

Utah’s senators are not alone in their desire to inject fairness into the tax system. Politicians as varied as President Trump, Sen. Bernie Sanders, House Speaker Paul Ryan and House Democratic Leader Nancy Pelosi have all called for a fairer tax structure.

Over the coming weeks, these diverse voices will have the opportunity to live up to their words and deliver a more fair tax structure to the American people. Hopefully this means no more free rides for colossal credit unions, which are subsidized by taxpayers who pay for infrastructure and government services used by the freeloading credit unions.

Congress will need to remain principled in order to get rid of preferential treatment for special interests like the big credit unions. As Sen. Lee pointed out, “We recognize that some [businesses that] rely on crony corporatist provisions will oppose our efforts to make the tax code simpler and fairer since tax simplification doesn’t benefit them the way the current, broken system does.” But if lawmakers remain steadfast, they can use the tax reform debate to end the shameful practice of allowing the federal government to use the tax code to pick winners and losers in the marketplace.

The result will be a tax structure that is fairer and more reasonable for all American businesses, not just credit unions and other shadowy special interests.

Josh Daniels is a policy adviser at Libertas Institute, a public policy think tank committed to clearing the path of opportunity for each Utahn by removing obstacles that limit freedom.